American Electric Power Company, Inc. (NYSE:AEP) just released its latest quarterly report and things are not looking great. It looks like a weak result overall, with both revenues and earnings falling well short of analyst predictions. Revenues of US$3.7b missed by 13%, and statutory earnings per share of US$1.00 fell short of forecasts by 9.6%. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Taking into account the latest results, the current consensus from American Electric Power Company's nine analysts is for revenues of US$16.2b in 2020, which would reflect a satisfactory 6.4% increase on its sales over the past 12 months. Per-share earnings are expected to expand 14% to US$4.25. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$16.6b and earnings per share (EPS) of US$4.30 in 2020. The consensus seems maybe a little more pessimistic, trimming their revenue forecasts after the latest results even though there was no change to its EPS estimates.
The consensus has reconfirmed its price target of US$91.11, showing that the analysts don't expect weaker sales expectations next year to have a material impact on American Electric Power Company's market value. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on American Electric Power Company, with the most bullish analyst valuing it at US$107 and the most bearish at US$76.00 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await American Electric Power Company shareholders.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the American Electric Power Company's past performance and to peers in the same industry. For example, we noticed that American Electric Power Company's rate of growth is expected to accelerate meaningfully, with revenues forecast to grow 6.4%, well above its historical decline of 1.0% a year over the past five years. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 3.1% next year. Not only are American Electric Power Company's revenues expected to improve, it seems that the analysts are also expecting it to grow faster than the wider industry.
The Bottom Line
The most obvious conclusion is that there's been no major change in the business' prospects in recent times, with the analysts holding their earnings forecasts steady, in line with previous estimates. They also downgraded their revenue estimates, although industry data suggests that American Electric Power Company's revenues are expected to grow faster than the wider industry. Yet - earnings are more important to the intrinsic value of the business. The consensus price target held steady at US$91.11, with the latest estimates not enough to have an impact on their price targets.
With that in mind, we wouldn't be too quick to come to a conclusion on American Electric Power Company. Long-term earnings power is much more important than next year's profits. At Simply Wall St, we have a full range of analyst estimates for American Electric Power Company going out to 2022, and you can see them free on our platform here..
Before you take the next step you should know about the 2 warning signs for American Electric Power Company (1 can't be ignored!) that we have uncovered.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.